(Aug 20): New Zealand’s government has accused the big four Australian banks that dominate its banking sector of behaving in an uncompetitive manner, and pledged to disrupt the “oligopoly” by injecting capital into state-owned Kiwibank.

Responding to a report on banking competition published Tuesday in Wellington by the antitrust Commerce Commission, Finance Minister Nicola Willis said it confirmed what had long been suspected — “New Zealand’s banking sector is uncompetitive and Kiwis are not being well served.”

“Today’s report calls out the market behaviour of New Zealand’s big four banks: they are highly profitable compared with international peers, they lack innovation and do not aggressively compete for customers,” Willis said. “Instead, ‘competition’ between them resembles a cosy pillow fight, with profit margins coming first and everyday Kiwis coming second.”

Willis said the government will act with urgency on all 14 Commerce Commission recommendations to inject genuine competition into the market, including investigating options for raising new capital for Kiwibank from pension and investment funds and “everyday New Zealanders.” She will take proposals to Cabinet no later than December but doesn’t any capital raising until 2026.

“I share the Commerce Commission’s vision for a stronger, more disruptive Kiwibank,” Willis said. “I want it to have the growth capital it needs to become a ‘maverick’ that exerts real competitive pressure on the big four.”

Former finance minister Grant Robertson announced the banking inquiry in June last year following suggestions that the main lenders were making excessive profits at a time when New Zealanders were facing increasing living costs.

New Zealand’s four biggest banks are all units of Australia’s major lenders, which together hold about 90% of deposits. Australia & New Zealand Banking Group Ltd and Westpac Banking Corp operate under their own brands, while Commonwealth Bank of Australia owns ASB Bank and National Australia Bank Ltd controls Bank of New Zealand.

‘Highly competitive’

ANZ New Zealand disagrees with the Commission’s characterisation of competition in the market and makes a “fair” return on equity, chief executive Antonia Watson said.

“Our staff go out every day to win and keep customers in a highly competitive market,” she said. “Our return on equity is around 12%, which we think is a fair and balanced return in line with similar banks globally, and many other New Zealand companies in other industries.”

Watson said her bank will nevertheless work with the government and regulators to implement the Commission’s recommendations and supports growing Kiwibank.

Kiwibank chief executive Steve Jurkovich said the lender is up for the challenge of fulfilling the role of “maverick” and taking on the larger banks, and would welcome access to more capital over time.

The government said it will follow the Commission’s recommendation to implement open banking, which gives consumers a secure way of moving money between different providers to access more options.

The Commission also recommended that the Reserve Bank put more emphasis on competition in regulating the banking sector.

“I agree and I intend to issue a new Financial Policy Remit this year to make clear the Government’s expectation that the Reserve Bank, in its policies and actions, supports a more competitive banking sector,” Willis said.

She said the Commission’s findings are relevant for several upcoming decisions by the RBNZ, including how to tailor its capital requirements to smaller players and new entrants and a revised access policy for Exchange Settlement Account System accounts.

The government also supports the finding that the RBNZ should review its settings for standardised risk weights taking into account impacts on competition, as well as the restrictions on the ability of some entities to market themselves as a bank.

“New Zealand bank customers are getting a raw deal: they face higher prices, fewer choices, and poorer service, even when compared to customers of the same parent banks in Australia,” Willis said. “This is not good enough.”

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